Unspent TARP Cash Shouldn’t Be Up for Grabs

Reports today are suggesting the Senate is close to unveiling a new “jobs bill” that would take $80 to $140 billion of money allocated to the Troubled Asset Relief Program (TARP) and redirect them to infrastructure projects, pension fund relief, small business lending, and efficient energy projects. The logic of those supporting this new spending bill is that since the $700 billion has already been earmarked to be spent and counted as a part of our debt level that using unspent TARP dollars wouldn’t make our fiscal situation any worse.

But this is holistically unsound logic and nothing less than Arthur Anderson-styled accounting.

Imagine a family that is $100,000 in debt. The family car breaks down and they need to purchase a new one. The family talks about it and decides to spend $25,000 to get a used car, effectively putting them $125,000 in debt. But the family needs the car. So the father takes out a $25,000 loan and goes to a used car dealership and finds a perfect vehicle for the family. It has enough room, low miles, is in good shape, and only costs $18,000. So the father buys the car, but on the way home decides to stop by the local electronics store and pick up a new big screen TV and surround sound system on sale for just $7,000. After all, the family was already planning to spend $25,000. It is not like he is putting the family further in debt right? Obviously not. Since he spent less than he thought, the family should return the $7,000 to the bank and be only $118,000 in debt.

The government today faces the same scenario. Just because all of the stimulus money hasn’t been spent doesn’t mean it is up for grabs. While the balance sheet might be assuming the expenditure of the $700 billion, it isn’t until that money has been loaned to a bank and lost that the money is really spent. If the president is honest about his commitment to decreasing the deficit he should promise to veto any bill that uses left over TARP money, and commit to returning every dollar left over or paid back of TARP to the Treasury to start chipping away at the national debt.